New Retiree - To annuitize, stay the 50/50 course, or combo?

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namajones
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Re: New Retiree - To annuitize, stay the 50/50 course, or combo?

Post by namajones »

I would need to know how the annuity company can offer the payout that it can.

When I hear 6% or more being thrown about in an environment in which long bonds are anywhere from negative to 2.5%, I get suspicious.

If there's some secret sauce involved, I don't want any part of it. Bernie Madoff had secret sauce. His investors didn't care what it was, and they paid the price.

So how are these companies offering the rates that they are?
BitTooAggressive
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Re: New Retiree - To annuitize, stay the 50/50 course, or combo?

Post by BitTooAggressive »

GetSmarter wrote: Sat Oct 09, 2021 8:32 pm
BitTooAggressive wrote: Sat Oct 09, 2021 4:07 pm It sounds like you have plenty of savings so it don’t see any financial benefit of buying an annuity.

To me an annuity only makes sense if you are worried about outliving your assets. Perhaps in the future it might make sense but not now.

I would also ask the fidelity rep if they are paid a commission and how much.
I was told my rep would make $1,200 commission on largest annuity that Fidelity recommended (maybe lesser amount annuities too - I didn't ask) but when I asked how much money the company would make if I bought annuity, "That's proprietary information and we don't know the amount either."

Benefit considerations: longevity "insurance"; higher returns than current interest rates; my uncertainty about putting same money into bonds.
Those commissions really give insight that those are big money makers for those that sell them. There is the chance of an early death and inflation really decreasing the real term payout.

I too am nervous about bonds. I have a little less than 11% in bonds and plan to slightly increase my bond holdings. I am 6 years from my planned retirement date.

Because of the low interest rates I have all my bonds in vanguards short term bond index fund. I would prefer to have vanguards total bond or intermediate bond fund but right now there is just too much downside potential in intermediate or long duration bonds IMO.
BitTooAggressive
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Re: New Retiree - To annuitize, stay the 50/50 course, or combo?

Post by BitTooAggressive »

namajones wrote: Sun Oct 10, 2021 5:10 am I would need to know how the annuity company can offer the payout that it can.

When I hear 6% or more being thrown about in an environment in which long bonds are anywhere from negative to 2.5%, I get suspicious.

If there's some secret sauce involved, I don't want any part of it. Bernie Madoff had secret sauce. His investors didn't care what it was, and they paid the price.

So how are these companies offering the rates that they are?
There is nothing fraudulent. The issuer typically will invest the money in a mix of bonds and stocks and ideally have sufficient reserves to outlast any stock market downturn and has the potential benefit of paying out money with no inflation adjustment or the beneficiary of the annuity dying early. A certain percentage will unfortunately pass early.

Also annuity issuers have declared bankruptcy in the past.
In the aggregate it is a terrible investment.
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JoMoney
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Re: New Retiree - To annuitize, stay the 50/50 course, or combo?

Post by JoMoney »

If I was drawing down a bond or bond ladder portfolio with the intent of drawing the principal and interest over some number of remaining years, I would consider exchanging those amounts for a SPIA. Every time I've looked at it, a SPIA would offer higher income then a bond ladder at current interest rates amortized over my expected remaining lifespan. Further, the SPIA insures if I outlive expectations the money won't run out.

If I didn't expect to be spending down the principal in a bond portfolio, and I wanted to leave behind an estate, I probably wouldn't use an annuity.

Personally, I sometimes think about trying to spend/give away all my money while I'm alive. The way I model it would likely involve a glide-path style approach buying a couple annuities over several years the last of which being around age 80+ (imagining my expected life span to be to age 84), and being able to spend/give away all my income each year. If it works out well the income it would be providing would be way more than I need, and providing me such severe tax pains I have to give away a lot of it to relieve the tax burden ;)
BitTooAggressive
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Re: New Retiree - To annuitize, stay the 50/50 course, or combo?

Post by BitTooAggressive »

JoMoney wrote: Sun Oct 10, 2021 7:43 am If I was drawing down a bond or bond ladder portfolio with the intent of drawing the principal and interest over some number of remaining years, I would consider exchanging those amounts for a SPIA. Every time I've looked at it, a SPIA would offer higher income then a bond ladder at current interest rates amortized over my expected remaining lifespan. Further, the SPIA insures if I outlive expectations the money won't run out.

If I didn't expect to be spending down the principal in a bond portfolio, and I wanted to leave behind an estate, I probably wouldn't use an annuity.

Personally, I sometimes think about trying to spend/give away all my money while I'm alive. The way I model it would likely involve a glide-path style approach buying a couple annuities over several years the last of which being around age 80+ (imagining my expected life span to be to age 84), and being able to spend/give away all my income each year. If it works out well the income it would be providing would be way more than I need, and providing me such severe tax pains I have to give away a lot of it to relieve the tax burden ;)
Feel free to throw some pennies this way if you want.
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JoMoney
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Re: New Retiree - To annuitize, stay the 50/50 course, or combo?

Post by JoMoney »

BitTooAggressive wrote: Sun Oct 10, 2021 7:48 am ....
Feel free to throw some pennies this way if you want.
If I'm still here at the point, and things work out as well as I'd like to day-dream, and you have better use of it then what I imagine the government would do with it, hit me up :wink:
Grt2bOutdoors
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Re: New Retiree - To annuitize, stay the 50/50 course, or combo?

Post by Grt2bOutdoors »

BitTooAggressive wrote: Sun Oct 10, 2021 7:19 am
namajones wrote: Sun Oct 10, 2021 5:10 am I would need to know how the annuity company can offer the payout that it can.

When I hear 6% or more being thrown about in an environment in which long bonds are anywhere from negative to 2.5%, I get suspicious.

If there's some secret sauce involved, I don't want any part of it. Bernie Madoff had secret sauce. His investors didn't care what it was, and they paid the price.

So how are these companies offering the rates that they are?
There is nothing fraudulent. The issuer typically will invest the money in a mix of bonds and stocks and ideally have sufficient reserves to outlast any stock market downturn and has the potential benefit of paying out money with no inflation adjustment or the beneficiary of the annuity dying early. A certain percentage will unfortunately pass early.

Also annuity issuers have declared bankruptcy in the past.
In the aggregate it is a terrible investment.
1. It’s not an investment, it’s longevity insurance.
2. They invest in both public and private forms of credit securities. They also may dabble in alternative assets including private equity funds that hold both equity and debt positions in illiquid investments.
3. You are benefiting from a pool of other like minded folks. As they die off, there are more funds available to ensure payments are made.
4. They have the unique ability to invest for the truly long term. Our investment horizon generally shrinks as we age, not so for a corporate entity which lives on in perpetuity.
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WoodSpinner
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Re: New Retiree - To annuitize, stay the 50/50 course, or combo?

Post by WoodSpinner »

OP,

Please consider the psychological and behavioral aspects to your decision.

Having a stable income floor can significantly reduce stress and concern. It also allows you to spend more freely and invest in experiences in your GoGo years of Retirement.

I was facing a similar decision on Pension vs. LumpSum with a similar low expected withdrawal rate. Ended up making the decision to take the pension based on expected returns of Bonds vs. Pension — strictly from a financial perspective. Since then I have come to realize how important the income floor is to our spending and our ability to ignore the gyrations of the market and really enjoy retirement.

WoodSpinner
BitTooAggressive
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Re: New Retiree - To annuitize, stay the 50/50 course, or combo?

Post by BitTooAggressive »

Grt2bOutdoors wrote: Sun Oct 10, 2021 8:07 am
BitTooAggressive wrote: Sun Oct 10, 2021 7:19 am
namajones wrote: Sun Oct 10, 2021 5:10 am I would need to know how the annuity company can offer the payout that it can.

When I hear 6% or more being thrown about in an environment in which long bonds are anywhere from negative to 2.5%, I get suspicious.

If there's some secret sauce involved, I don't want any part of it. Bernie Madoff had secret sauce. His investors didn't care what it was, and they paid the price.

So how are these companies offering the rates that they are?
There is nothing fraudulent. The issuer typically will invest the money in a mix of bonds and stocks and ideally have sufficient reserves to outlast any stock market downturn and has the potential benefit of paying out money with no inflation adjustment or the beneficiary of the annuity dying early. A certain percentage will unfortunately pass early.

Also annuity issuers have declared bankruptcy in the past.
In the aggregate it is a terrible investment.
1. It’s not an investment, it’s longevity insurance.
2. They invest in both public and private forms of credit securities. They also may dabble in alternative assets including private equity funds that hold both equity and debt positions in illiquid investments.
3. You are benefiting from a pool of other like minded folks. As they die off, there are more funds available to ensure payments are made.
4. They have the unique ability to invest for the truly long term. Our investment horizon generally shrinks as we age, not so for a corporate entity which lives on in perpetuity.
I agree with all points.
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GetSmarter
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Re: New Retiree - To annuitize, stay the 50/50 course, or combo?

Post by GetSmarter »

namajones wrote: Sun Oct 10, 2021 5:10 am I would need to know how the annuity company can offer the payout that it can.

When I hear 6% or more being thrown about in an environment in which long bonds are anywhere from negative to 2.5%, I get suspicious.

If there's some secret sauce involved, I don't want any part of it. Bernie Madoff had secret sauce. His investors didn't care what it was, and they paid the price.

So how are these companies offering the rates that they are?
I asked this very question. The answer given: Mortality credits and bonds - apparently, I was told, insurance companies find the best bonds that the public won't find.
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GetSmarter
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Re: New Retiree - To annuitize, stay the 50/50 course, or combo?

Post by GetSmarter »

Grt2bOutdoors wrote: Sun Oct 10, 2021 8:07 am
BitTooAggressive wrote: Sun Oct 10, 2021 7:19 am
namajones wrote: Sun Oct 10, 2021 5:10 am I would need to know how the annuity company can offer the payout that it can.

When I hear 6% or more being thrown about in an environment in which long bonds are anywhere from negative to 2.5%, I get suspicious.

If there's some secret sauce involved, I don't want any part of it. Bernie Madoff had secret sauce. His investors didn't care what it was, and they paid the price.

So how are these companies offering the rates that they are?
There is nothing fraudulent. The issuer typically will invest the money in a mix of bonds and stocks and ideally have sufficient reserves to outlast any stock market downturn and has the potential benefit of paying out money with no inflation adjustment or the beneficiary of the annuity dying early. A certain percentage will unfortunately pass early.

Also annuity issuers have declared bankruptcy in the past.
In the aggregate it is a terrible investment.
1. It’s not an investment, it’s longevity insurance.
2. They invest in both public and private forms of credit securities. They also may dabble in alternative assets including private equity funds that hold both equity and debt positions in illiquid investments.
3. You are benefiting from a pool of other like minded folks. As they die off, there are more funds available to ensure payments are made.
4. They have the unique ability to invest for the truly long term. Our investment horizon generally shrinks as we age, not so for a corporate entity which lives on in perpetuity.
Speaking of like-minded folks buying longevity insurance with its mortality credits, sometimes I think the stock market is inadvertently behaving in a similar manner. Low interest rate environment, has people not knowing where to put money. So they go for yield in stocks, more people buy in, stock values rise. I wonder to what degree this is happening in the stock market now, and will continue, keeping equity values high.
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GerryL
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Re: New Retiree - To annuitize, stay the 50/50 course, or combo?

Post by GerryL »

GetSmarter wrote: Sun Oct 10, 2021 11:00 am
namajones wrote: Sun Oct 10, 2021 5:10 am I would need to know how the annuity company can offer the payout that it can.

When I hear 6% or more being thrown about in an environment in which long bonds are anywhere from negative to 2.5%, I get suspicious.

If there's some secret sauce involved, I don't want any part of it. Bernie Madoff had secret sauce. His investors didn't care what it was, and they paid the price.

So how are these companies offering the rates that they are?
I asked this very question. The answer given: Mortality credits and bonds - apparently, I was told, insurance companies find the best bonds that the public won't find.
Remember the saying "Annuities aren't bought, they are sold." Does not apply to SPIAs, probably, but definitely to the other kinds of annuities.
WhiteMaxima
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Re: New Retiree - To annuitize, stay the 50/50 course, or combo?

Post by WhiteMaxima »

SS and pension are also annunities, they guarantee your monthly income as long as you are still breath. During severe stock draw down period, they provide safe net.
namajones
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Re: New Retiree - To annuitize, stay the 50/50 course, or combo?

Post by namajones »

GetSmarter wrote: Sun Oct 10, 2021 11:00 am
namajones wrote: Sun Oct 10, 2021 5:10 am I would need to know how the annuity company can offer the payout that it can.

When I hear 6% or more being thrown about in an environment in which long bonds are anywhere from negative to 2.5%, I get suspicious.

If there's some secret sauce involved, I don't want any part of it. Bernie Madoff had secret sauce. His investors didn't care what it was, and they paid the price.

So how are these companies offering the rates that they are?
I asked this very question. The answer given: Mortality credits and bonds - apparently, I was told, insurance companies find the best bonds that the public won't find.
Ah, thanks. Sounds like secret sauce to me.
ncbill
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Re: New Retiree - To annuitize, stay the 50/50 course, or combo?

Post by ncbill »

WhiteMaxima wrote: Sun Oct 10, 2021 11:51 am SS and pension are also annunities, they guarantee your monthly income as long as you are still breath. During severe stock draw down period, they provide safe net.
No COLA with most SPIAs...IMHO, with current rock-bottom interest rates that means a serious risk the real return gets eaten up by inflation for someone who is now only in their 60s still with 20+ years (assuming a male) of statistical life expectancy left.
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Re: New Retiree - To annuitize, stay the 50/50 course, or combo?

Post by WhiteMaxima »

ncbill wrote: Sun Oct 10, 2021 4:07 pm
WhiteMaxima wrote: Sun Oct 10, 2021 11:51 am SS and pension are also annunities, they guarantee your monthly income as long as you are still breath. During severe stock draw down period, they provide safe net.
No COLA with most SPIAs...IMHO, with current rock-bottom interest rates that means a serious risk the real return gets eaten up by inflation for someone who is now only in their 60s still with 20+ years (assuming a male) of statistical life expectancy left.
SS has cost if living adjustment. But one still need eqity investment to hedge against inflation.
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beyou
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Re: New Retiree - To annuitize, stay the 50/50 course, or combo?

Post by beyou »

namajones wrote: Sun Oct 10, 2021 1:55 pm
GetSmarter wrote: Sun Oct 10, 2021 11:00 am
namajones wrote: Sun Oct 10, 2021 5:10 am I would need to know how the annuity company can offer the payout that it can.

When I hear 6% or more being thrown about in an environment in which long bonds are anywhere from negative to 2.5%, I get suspicious.

If there's some secret sauce involved, I don't want any part of it. Bernie Madoff had secret sauce. His investors didn't care what it was, and they paid the price.

So how are these companies offering the rates that they are?
I asked this very question. The answer given: Mortality credits and bonds - apparently, I was told, insurance companies find the best bonds that the public won't find.
Ah, thanks. Sounds like secret sauce to me.
Ha. I work for an asset manager that manages for our major insurance parent and other insurance companies that sell these products. While yes large institutional investors see bonds you would not see on your retail brokerage acct, they see same bonds as any mutual fund manager, pension fund manager or other large investor. That said, they also use derivatives to hedge their liability to you (derivatives that are also not available to retail investors except vis mutual funds, pensions and insurance). Mostly it’s pooling risk.
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Re: New Retiree - To annuitize, stay the 50/50 course, or combo?

Post by heyyou »

SS delayed to age 70 is the best paying annuity with its annual inflation adjustments.
Any annuity from an insurance company is currently not a good purchase due to the (1) low current bond rates which is what the insurance company buys with your money, to generate income for paying your annuity, and (2) the major risk of future inflation from today's tiny current bond rates. Delay buying any annuity for a decade since you will then be older for a higher payout, and current rates cannot go much lower so your risk is only for getting the same or better interest rates.

https://crr.bc.edu/wp-content/uploads/2 ... 19-508.pdf Some of the percentages are buried in the appendix on page 7, but there are RMD percentages for people of all ages, who inherit IRA assets. The retiree spends interest and dividends plus the rising % of the recent portfolio value.
This portfolio spending method has variable income, but the retiree can see how next year's income will change, as this year's portfolio value fluctuates, so you do get advanced warning about future income changes. So many other methods are striving for steady income which has the big risk of underspending as a buffer for the bad years, so you become the richest person in the graveyard if you do not experience the historical worst sequence of stock market returns. My preference to have somewhat variable retirement income, with me adapting my spending (up and down) annually as retirement proceeds, so I do get to spend more of my portfolio.
namajones
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Re: New Retiree - To annuitize, stay the 50/50 course, or combo?

Post by namajones »

beyou wrote: Sun Oct 10, 2021 7:57 pm Mostly it’s pooling risk.
So I assume that when you sign the papers for an annuity, you are assuming the risk if the company that sold you the annuity goes belly up. Is that correct?

If whatever secret sauce the annuity company uses to give you 6% when long bonds are yielding negative to below inflation turns sour and the whole house of cards comes crashing down, I assume you're SOL.

I hope I'm wrong. But you know the old saying: "if it sounds too good to be true...." To me, 6% in a 2.x% world sounds too good to be true.

Also, to reference someone up thread, benefitting from a pool of "like minded individuals" sounds awfully similar to a ponzi scheme. If in a protracted downturn or financial crisis, the pool of individuals dries up and the annuity company's secret sauce turns sour, then who's left with the dry bowl of rice?
bberris
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Re: New Retiree - To annuitize, stay the 50/50 course, or combo?

Post by bberris »

As an alternative to CD ladders you could buy limited year annuities (MYGAs) to bridge from retirement to peak SS claiming at 70. The interest rate may be better, and the return of capital monthly makes cash flow easier to match expenses.
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beyou
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Re: New Retiree - To annuitize, stay the 50/50 course, or combo?

Post by beyou »

namajones wrote: Mon Oct 11, 2021 5:05 am
beyou wrote: Sun Oct 10, 2021 7:57 pm Mostly it’s pooling risk.
So I assume that when you sign the papers for an annuity, you are assuming the risk if the company that sold you the annuity goes belly up. Is that correct?

If whatever secret sauce the annuity company uses to give you 6% when long bonds are yielding negative to below inflation turns sour and the whole house of cards comes crashing down, I assume you're SOL.

I hope I'm wrong. But you know the old saying: "if it sounds too good to be true...." To me, 6% in a 2.x% world sounds too good to be true.

Also, to reference someone up thread, benefitting from a pool of "like minded individuals" sounds awfully similar to a ponzi scheme. If in a protracted downturn or financial crisis, the pool of individuals dries up and the annuity company's secret sauce turns sour, then who's left with the dry bowl of rice?
I meant the insurance company pooling their risk.
Their actuaries determine how many survivors will collect for how long to compute the payout they will face. They do not have to pay us market rates, can pay more since part of what they promise will never be paid out (to deceased policy holders).

There is some state insurance for default you speak of on some insurance policies, but you need to find out what and how well protected in your state.

https://www.annuity.org/annuities/regul ... ociations/
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bertilak
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Re: New Retiree - To annuitize, stay the 50/50 course, or combo?

Post by bertilak »

BitTooAggressive wrote: Sat Oct 09, 2021 4:07 pm To me an annuity only makes sense if you are worried about outliving your assets.
Perhaps this is just another way of saying the same thing...
  • An annuity is for those whose portfolio does not provide the income they need, for as long as they want. An annuity pays more (and is both perpetual and guaranteed) than the expected return of an equally-valued stock/bond portfolio (which is NOT guaranteed).
May neither drought nor rain nor blizzard disturb the joy juice in your gizzard. -- Squire Omar Barker (aka S.O.B.), the Cowboy Poet
BitTooAggressive
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Re: New Retiree - To annuitize, stay the 50/50 course, or combo?

Post by BitTooAggressive »

bertilak wrote: Mon Oct 11, 2021 9:04 am
BitTooAggressive wrote: Sat Oct 09, 2021 4:07 pm To me an annuity only makes sense if you are worried about outliving your assets.
Perhaps this is just another way of saying the same thing...
  • An annuity is for those whose portfolio does not provide the income they need, for as long as they want. An annuity pays more (and is both perpetual and guaranteed) than the expected return of an equally-valued stock/bond portfolio (which is NOT guaranteed).
It’s along the same lines but maybe not exactly. There is no way to know if an annuity will pay more than some stock/bond mix. It is perpetual and guaranteed unless the annuity provider goes bankrupt.

The stock/bond mix will likely outperform the annuity, but you only live once so a probability based outcome may not provide some people with the peace of mind they want.

I just don’t think it pays to provide an annuity earlier in the process when it looks like your investments will easily cover your needs.

But I understand some may like the comfort/safety they see in an annuity.

Me personally for this case I would fear inflation possibly destroying my annuity income more than the assets not providing enough.

There is no safe investment. Every investment has it’s possible weakness, which could be volatility, inflation,…
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GetSmarter
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Re: New Retiree - To annuitize, stay the 50/50 course, or combo?

Post by GetSmarter »

bberris wrote: Mon Oct 11, 2021 5:39 am As an alternative to CD ladders you could buy limited year annuities (MYGAs) to bridge from retirement to peak SS claiming at 70. The interest rate may be better, and the return of capital monthly makes cash flow easier to match expenses.
Thanks. A worthy scenario to consider.
“The more simple we are, the more complete we become.” August Rodin | | “The less I needed, the better I felt.” Charles Bukowski
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Re: New Retiree - To annuitize, stay the 50/50 course, or combo?

Post by bertilak »

BitTooAggressive wrote: Mon Oct 11, 2021 11:24 am
bertilak wrote: Mon Oct 11, 2021 9:04 am
BitTooAggressive wrote: Sat Oct 09, 2021 4:07 pm To me an annuity only makes sense if you are worried about outliving your assets.
Perhaps this is just another way of saying the same thing...
  • An annuity is for those whose portfolio does not provide the income they need, for as long as they want. An annuity pays more (and is both perpetual and guaranteed) than the expected return of an equally-valued stock/bond portfolio (which is NOT guaranteed).
It’s along the same lines but maybe not exactly. There is no way to know if an annuity will pay more than some stock/bond mix. It is perpetual and guaranteed unless the annuity provider goes bankrupt.
There is that risk, but it is offset by State Guaranty Associations.
The stock/bond mix will likely outperform the annuity, but you only live once so a probability based outcome may not provide some people with the peace of mind they want.
Right. When planning for your one-shot at the rest of your life it is best not to assume you will get the average results. On average, Russian Roulette is pretty safe.
I just don’t think it pays to provide an annuity earlier in the process when it looks like your investments will easily cover your needs.

But I understand some may like the comfort/safety they see in an annuity.

Me personally for this case I would fear inflation possibly destroying my annuity income more than the assets not providing enough.

There is no safe investment. Every investment has it’s possible weakness, which could be volatility, inflation,…
Agree with all that, but a self-purchased annuity can be a useful tool in one's financial toolkit, even if it is often not needed -- mostly because Social Security is a decent annuity available to all for free. And some of us are lucky enough to have another free annuity in the form of a pension. Well these things are not truly free but those that have them already paid the price.
May neither drought nor rain nor blizzard disturb the joy juice in your gizzard. -- Squire Omar Barker (aka S.O.B.), the Cowboy Poet
BitTooAggressive
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Re: New Retiree - To annuitize, stay the 50/50 course, or combo?

Post by BitTooAggressive »

bertilak wrote: Mon Oct 11, 2021 11:36 am
BitTooAggressive wrote: Mon Oct 11, 2021 11:24 am
bertilak wrote: Mon Oct 11, 2021 9:04 am
BitTooAggressive wrote: Sat Oct 09, 2021 4:07 pm To me an annuity only makes sense if you are worried about outliving your assets.
Perhaps this is just another way of saying the same thing...
  • An annuity is for those whose portfolio does not provide the income they need, for as long as they want. An annuity pays more (and is both perpetual and guaranteed) than the expected return of an equally-valued stock/bond portfolio (which is NOT guaranteed).
It’s along the same lines but maybe not exactly. There is no way to know if an annuity will pay more than some stock/bond mix. It is perpetual and guaranteed unless the annuity provider goes bankrupt.
There is that risk, but it is offset by State Guaranty Associations.
The stock/bond mix will likely outperform the annuity, but you only live once so a probability based outcome may not provide some people with the peace of mind they want.
Right. When planning for your one-shot at the rest of your life it is best not to assume you will get the average results. On average, Russian Roulette is pretty safe.
I just don’t think it pays to provide an annuity earlier in the process when it looks like your investments will easily cover your needs.

But I understand some may like the comfort/safety they see in an annuity.

Me personally for this case I would fear inflation possibly destroying my annuity income more than the assets not providing enough.

There is no safe investment. Every investment has it’s possible weakness, which could be volatility, inflation,…
Agree with all that, but a self-purchased annuity can be a useful tool in one's financial toolkit, even if it is often not needed -- mostly because Social Security is a decent annuity available to all for free. And some of us are lucky enough to have another free annuity in the form of a pension. Well these things are not truly free but those that have them already paid the price.
Seems like we mostly agree. I would not call SS free however. Could you imagine how much money you would have if you could have invested just 80% of your social security contributions and your employer’s contribution??? It makes me weep. The other 20% it seems could cover the disability portion of SS.
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Re: New Retiree - To annuitize, stay the 50/50 course, or combo?

Post by bertilak »

BitTooAggressive wrote: Mon Oct 11, 2021 11:54 am
bertilak wrote: Mon Oct 11, 2021 11:36 am Agree with all that, but a self-purchased annuity can be a useful tool in one's financial toolkit, even if it is often not needed -- mostly because Social Security is a decent annuity available to all for free. And some of us are lucky enough to have another free annuity in the form of a pension. Well these things are not truly free but those that have them already paid the price.
Seems like we mostly agree. I would not call SS free however. Could you imagine how much money you would have if you could have invested just 80% of your social security contributions and your employer’s contribution??? It makes me weep. The other 20% it seems could cover the disability portion of SS.
Like (I thought) I implied there is little choice involved!

And I must admit, in my younger years I was too dumb to invest and too dumb to know how to invest. So, SS and pension were life savers. I can at least take credit for knowing these things were coming.
May neither drought nor rain nor blizzard disturb the joy juice in your gizzard. -- Squire Omar Barker (aka S.O.B.), the Cowboy Poet
lws
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Re: New Retiree - To annuitize, stay the 50/50 course, or combo?

Post by lws »

You have 2.5M now.
There is a good chance that it will last your lifetime if properly invested.
If you have doubts then you may consider an annuity.
You are doing the right thing by researching now.
Topic Author
GetSmarter
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Re: New Retiree - To annuitize, stay the 50/50 course, or combo?

Post by GetSmarter »

heyyou wrote: Mon Oct 11, 2021 1:41 am SS delayed to age 70 is the best paying annuity with its annual inflation adjustments.
Any annuity from an insurance company is currently not a good purchase due to the (1) low current bond rates which is what the insurance company buys with your money, to generate income for paying your annuity, and (2) the major risk of future inflation from today's tiny current bond rates. Delay buying any annuity for a decade since you will then be older for a higher payout, and current rates cannot go much lower so your risk is only for getting the same or better interest rates.

https://crr.bc.edu/wp-content/uploads/2 ... 19-508.pdf Some of the percentages are buried in the appendix on page 7, but there are RMD percentages for people of all ages, who inherit IRA assets. The retiree spends interest and dividends plus the rising % of the recent portfolio value.
This portfolio spending method has variable income, but the retiree can see how next year's income will change, as this year's portfolio value fluctuates, so you do get advanced warning about future income changes. So many other methods are striving for steady income which has the big risk of underspending as a buffer for the bad years, so you become the richest person in the graveyard if you do not experience the historical worst sequence of stock market returns. My preference to have somewhat variable retirement income, with me adapting my spending (up and down) annually as retirement proceeds, so I do get to spend more of my portfolio.
Thank you for sharing your thoughts and link. I found PDF good food for thought.
“The more simple we are, the more complete we become.” August Rodin | | “The less I needed, the better I felt.” Charles Bukowski
Luke Duke
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Re: New Retiree - To annuitize, stay the 50/50 course, or combo?

Post by Luke Duke »

Pocanutin wrote: Wed Oct 06, 2021 3:35 pm By the Pond:

We did exactly the same thing...Purchased a series of SPIAs over a 5 year period ( and were lucky enough to get an average 6% payout). All told, the annuities constituted approx. 45% of our savings and that, coupled with SS, has allowed us to sleep well.. The remaining 55% of our IRAs are allocated at 50/50 Fidelity Total Market Index and Fidelity Intermediate Treasuries.

We are 79 and 75 years of age and didn't begin to purchase the SPIAs until I was 66 yo. In addition, SPIAs and SS cover 93% of our current expenses.

I would recommend this strategy to others. It has allowed us to spend more than I think that we would have without the SPIAs. Probably not the best strategy to maximize wealth however.

To the OP: Best of luck.

P
If you have heirs that you like and you have 93% of your spending covered, most would recommend a more aggressive asset allocation.
ByThePond
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Re: New Retiree - To annuitize, stay the 50/50 course, or combo?

Post by ByThePond »

Luke Duke wrote: Tue Oct 12, 2021 8:57 am
Pocanutin wrote: Wed Oct 06, 2021 3:35 pm By the Pond:

We did exactly the same thing...Purchased a series of SPIAs over a 5 year period ( and were lucky enough to get an average 6% payout). All told, the annuities constituted approx. 45% of our savings and that, coupled with SS, has allowed us to sleep well.. The remaining 55% of our IRAs are allocated at 50/50 Fidelity Total Market Index and Fidelity Intermediate Treasuries.

We are 79 and 75 years of age and didn't begin to purchase the SPIAs until I was 66 yo. In addition, SPIAs and SS cover 93% of our current expenses.

I would recommend this strategy to others. It has allowed us to spend more than I think that we would have without the SPIAs. Probably not the best strategy to maximize wealth however.

To the OP: Best of luck.

P
If you have heirs that you like and you have 93% of your spending covered, most would recommend a more aggressive asset allocation.
Yes. This is our case, where SS and SPIA will fully cover our expenses. Our AA is about 80/20.
Pocanutin
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Re: New Retiree - To annuitize, stay the 50/50 course, or combo?

Post by Pocanutin »

Yes, I neglected to mention that we have two Roths funded for our heirs...In addition, we are currently helping our 6 grandchildren financially (3 in college and 1 about to enter!!).

Without the two Roths, we would indeed have a more aggressive IRA portfolio... The Roths are allocated 80/20

thanks for the reminder to post this.

P
bikechuck
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Re: New Retiree - To annuitize, stay the 50/50 course, or combo?

Post by bikechuck »

BitTooAggressive wrote: Mon Oct 11, 2021 11:54 am Seems like we mostly agree. I would not call SS free however. Could you imagine how much money you would have if you could have invested just 80% of your social security contributions and your employer’s contribution??? It makes me weep.
I don't look at it that way; SS is invested in U.S. Treasuries and if I did not have SS I would own more Treasuries and less equities than I have in my current portfolio.

If you look at it that way when constructing your overall portfolio I think that having SS (the only inflation adjusted annuity currently available) is an incredible value.

Perhaps my logic is flawed?
BitTooAggressive
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Re: New Retiree - To annuitize, stay the 50/50 course, or combo?

Post by BitTooAggressive »

bikechuck wrote: Wed Oct 13, 2021 9:50 am
BitTooAggressive wrote: Mon Oct 11, 2021 11:54 am Seems like we mostly agree. I would not call SS free however. Could you imagine how much money you would have if you could have invested just 80% of your social security contributions and your employer’s contribution??? It makes me weep.
I don't look at it that way; SS is invested in U.S. Treasuries and if I did not have SS I would own more Treasuries and less equities than I have in my current portfolio.

If you look at it that way when constructing your overall portfolio I think that having SS (the only inflation adjusted annuity currently available) is an incredible value.

Perhaps my logic is flawed?
Your logic is very flawed or only addresses when you are in retirement or approaching retirement. I agree with what you said in that case I hold fewer bonds because of SS.

But if SS worked like your 401k you probably would have it 100% equities or close to that far away from retirement. As you approached retirement you could easily have 1.5 to 3 million dollars in stocks/bonds. That seems to be worth much more than my SS value. I could leave to heirs also. SS I have no options for that.
bikechuck
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Re: New Retiree - To annuitize, stay the 50/50 course, or combo?

Post by bikechuck »

BitTooAggressive wrote: Wed Oct 13, 2021 11:37 am
bikechuck wrote: Wed Oct 13, 2021 9:50 am
BitTooAggressive wrote: Mon Oct 11, 2021 11:54 am Seems like we mostly agree. I would not call SS free however. Could you imagine how much money you would have if you could have invested just 80% of your social security contributions and your employer’s contribution??? It makes me weep.
I don't look at it that way; SS is invested in U.S. Treasuries and if I did not have SS I would own more Treasuries and less equities than I have in my current portfolio.

If you look at it that way when constructing your overall portfolio I think that having SS (the only inflation adjusted annuity currently available) is an incredible value.

Perhaps my logic is flawed?
Your logic is very flawed or only addresses when you are in retirement or approaching retirement. I agree with what you said in that case I hold fewer bonds because of SS.

But if SS worked like your 401k you probably would have it 100% equities or close to that far away from retirement. As you approached retirement you could easily have 1.5 to 3 million dollars in stocks/bonds. That seems to be worth much more than my SS value. I could leave to heirs also. SS I have no options for that.
We are all different and you have not convinced me that my logic "is very flawed" though you are entitled to that opinion.

I am more risk averse than you and would never have held 100% equities even when I was a young whipper snapper. Would I have a larger portfolio today had I done that ... perhaps assuming that had I chosen 100% equities I would have found the backbone to "stay the course" during the down times. Knowing that I would have a social security benefit helped me to have the backbone to maintain my chosen allocation throughout my career including during bear markets and market corrections.

knowing I had an inflation adjusted annuity coming from SS I did not panic and sell during market corrections and bear markets and today in my late 60's I am satisfied with what I have in my portfolio and I am more than satisfied with my Social Security benefit which I will claim when I reach 70.

Having a source of inflation adjusted income even if my portfolio collapses in my old age is very comforting and helps me sleep at night.
wrongfunds
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Re: New Retiree - To annuitize, stay the 50/50 course, or combo?

Post by wrongfunds »

BitTooAggressive wrote: Wed Oct 13, 2021 11:37 am
bikechuck wrote: Wed Oct 13, 2021 9:50 am
BitTooAggressive wrote: Mon Oct 11, 2021 11:54 am Seems like we mostly agree. I would not call SS free however. Could you imagine how much money you would have if you could have invested just 80% of your social security contributions and your employer’s contribution??? It makes me weep.
I don't look at it that way; SS is invested in U.S. Treasuries and if I did not have SS I would own more Treasuries and less equities than I have in my current portfolio.

If you look at it that way when constructing your overall portfolio I think that having SS (the only inflation adjusted annuity currently available) is an incredible value.

Perhaps my logic is flawed?
Your logic is very flawed or only addresses when you are in retirement or approaching retirement. I agree with what you said in that case I hold fewer bonds because of SS.

But if SS worked like your 401k you probably would have it 100% equities or close to that far away from retirement. As you approached retirement you could easily have 1.5 to 3 million dollars in stocks/bonds. That seems to be worth much more than my SS value. I could leave to heirs also. SS I have no options for that.
Assuming current max of SS is around 48K per year, that works out to be equivalent of 1.2M using the 4% guideline. That is NOT too far off from your 1.5M. I think "flawed" is stretching it.
BitTooAggressive
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Re: New Retiree - To annuitize, stay the 50/50 course, or combo?

Post by BitTooAggressive »

wrongfunds wrote: Wed Oct 13, 2021 3:02 pm
BitTooAggressive wrote: Wed Oct 13, 2021 11:37 am
bikechuck wrote: Wed Oct 13, 2021 9:50 am
BitTooAggressive wrote: Mon Oct 11, 2021 11:54 am Seems like we mostly agree. I would not call SS free however. Could you imagine how much money you would have if you could have invested just 80% of your social security contributions and your employer’s contribution??? It makes me weep.
I don't look at it that way; SS is invested in U.S. Treasuries and if I did not have SS I would own more Treasuries and less equities than I have in my current portfolio.

If you look at it that way when constructing your overall portfolio I think that having SS (the only inflation adjusted annuity currently available) is an incredible value.

Perhaps my logic is flawed?
Your logic is very flawed or only addresses when you are in retirement or approaching retirement. I agree with what you said in that case I hold fewer bonds because of SS.

But if SS worked like your 401k you probably would have it 100% equities or close to that far away from retirement. As you approached retirement you could easily have 1.5 to 3 million dollars in stocks/bonds. That seems to be worth much more than my SS value. I could leave to heirs also. SS I have no options for that.
Assuming current max of SS is around 48K per year, that works out to be equivalent of 1.2M using the 4% guideline. That is NOT too far off from your 1.5M. I think "flawed" is stretching it.
1.5 is if you invested real conservative, poorly or terrible stock market. Most people I think would be well above that. Closer to 2.5 or 3 IMO. In fact anyone that has 48k benefit for SS probably at 3 million or close to it.
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